Five Lessons Corporations Can Learn From the Westminster Dog Show

Erika Kelton
, ContributorI write about whistleblower matters involving fraud and other issues.Opinions expressed by Forbes Contributors are their own.

Earlier this week, the top ranks of America’s dog breeds gathered in Madison Square Garden to compete for the Best in Show trophy at the Westminster Kennel Club dog show. This elite showcase for canine breeds has a lot of basic lessons for teaching good corporate behavior.

Training dogs is all about setting the rules, teaching the boundaries, sticking to them and rewarding pups when they perform well. Should it be any different for big business?

Good behavior can be learned by both dogs and corporations.

Many in the corporate world think it should be. All too often banks, pharma companies and other corporations seem to reward those who break the rules. Consider the parade of pharma off-label offenders in recent years – J&J, Glaxo, Pfizer, Cephalon, Lilly, Abbott, etc. – which showered incentives and bonus money on sales representatives who pushed company prescription drugs for unapproved uses, while often punishing those who insisted on following the rules.

It's time to change that way of thinking and improve corporate behavior, and what better way than through five basic, dog-training lessons:

1) Play by the rules. A well-trained dog is a good dog. Chief executive officers and corporate boards need to pay a lot more attention to rules and compliance. It’s embarrassing to have to admit to having one of the worst-behaved dogs at the park. Barclays CEO Antony Jenkins understood this all too well when announcing this week the closure of the bank’s alleged tax avoidance unit – Structured Capital Markets group, which allegedly orchestrated tax avoidance on an “industrial scale,” as one member of the Parliamentary Banking Commission said. Jenkins tucked his tail as he confessed that the unit’s tax transactions were “incompatible” with a supposedly reformed Barclays. “The old ways were not the right way to behave nor did they deliver the right results for banks themselves or for wider society,” he said as part of the bank’s mea culpa.

2) Exercise restraint. Whether it’s at glitzy Westminster or the local dog park, dogs need to know how to walk on a leash. In the same way, corporations cannot act like off-leash play is always appropriate. Laws and regulations are designed to restrain corporations from unfair or fraudulent play so that investors, competitors and taxpayers are protected from the dangers of unregulated markets, defective products, overpriced services and unfair business practices, among other perils. Look no further than JP Morgan’s London Whale fiasco to understand that unrestrained activity can lead to serious trouble.

3) Clean up messes. Responsible dog owners understand that if your dog makes a mess, you’ve got to pick up after it. Pretending to clean up a mess or turning away and ignoring it are very bad manners in the dog world. Corporate officers and boards have a lot to learn from this simple tenet. They should listen when concerns are expressed internally over the propriety of certain business practices -- even if it’s not pleasant.

4) Praise behavior that follows the rules. Dogs learn through positive reinforcement. They work for treats. Humans do, too. Companies need to start incentivizing business integrity by rewarding employees who report wrongdoing or compliance lapses internally, instead of retaliating against them for voicing concerns. Those in the executive suite should know by now that there are plenty of other places employees can get rewarded for telling the truth – including the Justice Department, the Internal Revenue Service, the Securities and Exchange Commission and the Commodity Futures Trading Commission. Fortunately for those executives, employees overwhelmingly raise their concerns internally first, before turning to government whistleblower programs that offer rewards.

5) Use negative reinforcement when rules are broken. Bad dogs get their toys taken away from them. CEOs and other corporate leaders should lose bonuses, other pay and even their jobs when their company engages in fraud or other serious wrongdoing. Clawbacks, such as those the Royal Bank of Scotland agreed to pay in response to the Libor scandal, are on the right track. The bank said it is deducting £300 million from employee incentive pay – including clawbacks of bonuses from traders and supervisors – primarily from the bank’s markets division, which was most heavily involved in the manipulation of Libor. RBS took the claw-backs, the bank said in its announcement last week, “to account for the reputational damage of these events and the risk of additional outstanding legal and regulatory action.”

When a dog simply won’t respond to specific positive and negative cues intended to improve his behavior, owners understandably get frustrated and want to consider more serious steps. One option is a “timeout,” so that the dog is temporarily separated from his cohorts and environment, and is unable to engage in poor and destructive behavior. Wrongdoing executives also need timeouts when their companies fail to play by the rules. That means, in appropriate cases, barring CEOs and company business units that committed fraud from working in the same industry or receiving federal program dollars. In extremely serious cases, send them to the ultimate timeout: prison.

Getting to “Best in Show” at Westminster takes a lot of work and a lot of training. If corporations showed the same dedication to the rules as Banana Joe and his handler and owner did to win this year’s top award at Westminster, investors, consumers and taxpayers would all be better “arf.”